With the massive rally in the Japanese yen and its slowing economy in recent quarters, the risks for an open intervention on the currency market by the Bank of Japan is increasing. While the mandate of the central bank is not related to managing the currency, the Japanese finance ministry has the authority to mandate the central bank to defend the markets from increased volatility.
With the rapid swings in the price of the Japanese yen being unwelcome at best, one of the key experts on the habits of the Japanese authorities when it comes to interventions, Eitsuke Sakakibara, dubbed Mr. Yen, has shared his views with Bloomberg.
He highlighted that the foreign exchange rate should be reflecting the difference between monetary policy in the U.S. and Japan, and that the impact of the Bank of Japan’s aggressive monetary easing is likely to taper off.
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The Japanese currency has increased over 15 per cent throughout the first half of 2016
The Japanese currency has increased over 15 per cent throughout the first half of 2016 with Sakakibara betting on intervention from the Bank of Japan. That said, Mr. Yen has also highlighted that current market intervention would have to be in agreement with the United States, a scenario which is seen as unlikely at current levels.
Only a break below the 100 mark and a drop towards 90 would warrant the consensus from G7 peers that would allow the BoJ to conduct direct intervention.
The Japanese yen has been consistently overperforming in recent quarters despite the Bank of Japan being one of the most aggressive monetary policymakers on the world. Last Friday, the Finance Minister of Japan Taro Aso said that the country has to coordinate with other countries in order to tackle the Japanese yen’s volatility.